The job cuts are viewed by analysts as a way of making Northern Rock more attractive to prospective buyers by reducing overheads and costs. Virgin Money, National Australia Bank and Tesco have expressed an interest in buying Northern Rock's profitable operations.

Existing members of the Northern Rock pension plan are to be switched to a money-purchase scheme, which exposes them more directly to fluctuating share prices on world stock exchanges.

The Unite union slammed the latest retrenchment as "short-termist" and called for political intervention "to prevent this business being dramatically scaled back and prepared for sale".

But the coalition government could be looking for an early windfall following a possible purchase of Northern Rock later this year, although bank insiders said that there was no "fixed timetable".

The taxpayer has a £1.4bn stake in Northern Rock plc, which is viewed as the good part of the business. Riskier mortgages have been hived off into a different company, dubbed Northern Rock's "bad bank", which recently reported a small profit. Overall, the Treasury has lent Northern Rock about £22bn. Much of that will be paid off over the next 20 years as mortgages are redeemed by existing customers.

Government's long-term goal is to increase competition among Britain's banks by selling Northern Rock to a new entrant, so a sale is viewed as a priority.

It is uncertain at this stage whether a buyer would be interested in both parts of the bank, which employed more than 6,500 people in 2007.

Union representatives said that the cutbacks at the Newcastle-based institution were a further blow to the north-east, where unemployment is already above the national average.

However, Gary Hoffman, Northern Rock's chief executive, said: "There is still a challenging economic environment and in order to meet our objectives, we must align our staffing level to match the smaller size of the business, increase efficiency and reduce our cost base."

The bank was now writing about a fifth of the value of mortgages that it offered borrowers at the height of the credit boom. Hoffman added: "We remain in public ownership and it is important that we continue to deliver value for taxpayers."

Union sources said the number of proposed job losses could reach nearly 1,000 if part-time and casual staff were included. Rob MacGregor, Unite national officer, said: "The decision by Northern Rock to cut over 20% of its workforce and alter the pensions of the remaining staff is devastating. Such massive changes represent a total reappraisal of the service the bank provides to its customers."

Last year, the Building Societies Association called for Northern Rock to be remutualised rather than sold to a rival or refloated on the stockmarket.

The BSA sponsored a report from Jonathan Michie, a professor at Oxford University, who said that mutuals could counterbalance the short-term pressure of City shareholders. Michie said: "Certain features of the building society model, including the comparatively low reliance on wholesale funding and focus on the protection of members rather than the satisfaction of shareholders, have left building societies better equipped to defend themselves against the financial crisis."